Revisions to the California State Implementation Plan, San Joaquin Valley Unified Air Pollution Control District, 50021-50033 [2012-20268]

Agencies

• ENVIRONMENTAL PROTECTION AGENCY

[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Rules and Regulations]
[Pages 50021-50033]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20268]


=======================================================================
-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2011-0571; FRL-9691-1]


Revisions to the California State Implementation Plan, San 
Joaquin Valley Unified Air Pollution Control District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: In this action, EPA is finalizing approval of San Joaquin 
Valley Unified Air Pollution Control District (SJVUAPCD) Rule 3170, 
``Federally Mandated Ozone Nonattainment Fee,'' as a revision to 
SJVUAPCD's portion of the California State Implementation Plan (SIP). 
Rule 3170 is a local fee rule submitted to address section 185 of the 
Clean Air Act (CAA or Act) with respect to the 1-hour ozone standard 
for anti-backsliding purposes. EPA is also finalizing approval of 
SJVUAPCD's fee-equivalent program, which includes Rule 3170 and state 
law authorities that authorize SJVUAPCD to impose supplemental fees on 
motor vehicles, as an alternative to the program required by section 
185 of the Act. EPA has determined that SJVUAPCD's alternative fee-
equivalent program is not less stringent than the program required by 
section 185, and, therefore, is approvable as an equivalent alternative 
program, consistent with the principles of section 172(e) of the Act.

DATES: This rule is effective on September 19, 2012.

[[Page 50022]]


ADDRESSES: EPA has established docket number EPA-R09-OAR-2011-0571 for 
this action. Generally, documents in the docket for this action are 
available electronically at https://www.regulations.gov or in hard copy 
at EPA Region IX, 75 Hawthorne Street, San Francisco, California. While 
all documents in the docket are listed at https://www.regulations.gov, 
some information may be publicly available only at the hard copy 
location (e.g., copyrighted material, large maps, multi-volume 
reports), and some may not be available in either location (e.g., 
confidential business information (CBI)). To inspect the hard copy 
materials, please schedule an appointment during normal business hours 
with the contact listed in the FOR FURTHER INFORMATION CONTACT section.

FOR FURTHER INFORMATION CONTACT: Lily Wong, EPA Region IX, (415) 947-
4114, wong.lily@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and 
``our'' refer to EPA.

Table of Contents

I. Proposed Action and Interim Final Determination to Defer 
Sanctions
II. Rationale for Approving Equivalent Alternative Programs
III. Public Comments and EPA Responses
IV. EPA Action
V. Statutory and Executive Order Reviews

I. Proposed Action and Interim Final Determination To Defer Sanctions

    On July 28, 2011 (76 FR 45212), EPA proposed to approve the 
following rule into the California SIP.

----------------------------------------------------------------------------------------------------------------
           Local agency               Rule No.              Rule title              Adopted         Submitted
----------------------------------------------------------------------------------------------------------------
SJVUAPCD.........................            3170  Federally Mandated Ozone           05/19/11         06/14/11
                                                    Nonattainment Fee.
----------------------------------------------------------------------------------------------------------------

    EPA also proposed to approve SJVUAPCD's fee-equivalent program, 
which includes Rule 3170 and state law authorities that authorize 
SJVUAPCD to impose supplemental fees on motor vehicles, as an 
equivalent alternative to the program required by section 185 of the 
Act for the 1-hour ozone standard as an anti-backsliding measure.
    In addition, on July 28, 2011 (76 FR 45199), EPA published an 
Interim Final Rule to defer the implementation of sanctions that would 
have resulted from EPA's final limited approval and limited disapproval 
of an earlier version of Rule 3170 (75 FR 1716, January 13, 2010).

II. Rationale for Approving Equivalent Alternative Programs

    In proposing this action regarding the SJVUAPCD, EPA proposed to 
allow states to meet the section 185 obligation arising from the 
revoked 1-hour ozone NAAQS through a SIP revision containing either the 
fee program prescribed in section 185 of the Act, or an equivalent 
alternative program. 76 FR 45213 (July 28, 2011). Since our proposed 
action on SJVUAPCD's alternative section 185 program, EPA has also 
proposed to approve an alternative section 185 program submitted by the 
State of California on behalf of the South Coast Air Quality Management 
District as an equivalent alternative program. 77 FR 1895-01 (January 
12, 2012). As further explained below, EPA is today approving through 
notice-and-comment rulemaking, SJVUAPCD Rule 3170 into the California 
SIP. We are also approving SJVUAPCD's alternative program as an 
equivalent alternative program consistent with the principles of 
section 172(e) of the CAA and not less stringent than a program 
prescribed by section 185.\1\
---------------------------------------------------------------------------

    \1\ EPA has previously set forth this reasoning in a memorandum 
from Stephen D. Page, Director, Office of Air Quality Planning and 
Standards, to Air Division Directors, ``Guidance on Developing Fee 
Programs Required by Clean Air Act Section 185 for the 1-hour Ozone 
NAAQS,'' January 5, 2010 (``Section 185 Guidance Memo''). On July 1, 
2011, the DC Circuit Court of Appeals vacated this guidance, on the 
ground that it was final agency action for which notice-and-comment 
rulemaking procedures were required, and that the Agency's failure 
to use the required notice and comment procedures rendered the 
guidance invalid. NRDC v. EPA, 643 F.3d 311 (DC Cir. 2011). In 
today's action, EPA, having gone through notice-and-comment 
rulemaking, adopts the reasoning set forth in that memorandum as it 
applies to SJVUAPCD's equivalent alternative program as its basis 
for approving the SJVUAPCD SIP revision. In so doing, we have 
applied the court's directive to follow the rulemaking requirements 
set forth in the Administrative Procedures Act to inform 
consideration of section 185 and equivalent alternative programs.
---------------------------------------------------------------------------

    Section 172(e) is an anti-backsliding provision of the CAA that 
requires EPA to develop regulations to ensure that controls in a 
nonattainment area are ``not less stringent'' than those that applied 
to the area before EPA revised a NAAQS to make it less stringent. In 
the Phase 1 Ozone Implementation Rule for the 1997 ozone NAAQS 
published on April 30, 2004 (69 FR 23951), EPA determined that although 
section 172(e) does not directly apply where EPA has strengthened the 
NAAQS, as it did in 1997, it was reasonable to apply to the transition 
from the 1-hour NAAQS to the more stringent 1997 8-hour NAAQS, the same 
anti-backsliding principle that would apply to the relaxation of a 
standard. Thus, as part of applying the principles in section 172(e) 
for purposes of the transition from the 1-hour standard to the 1997 8-
hour standard, EPA can either require states to retain programs that 
applied for purposes of the 1-hour standard, or can allow states to 
adopt equivalent alternative programs, but only if such alternatives 
are determined through notice-and-comment rulemaking to be ``not less 
stringent'' than the mandated program. EPA has previously identified 
three types of alternative programs that could satisfy the section 185 
requirement: (i) Those that achieve the same emissions reductions; (ii) 
those that raise the same amount of revenue and establish a process 
where the funds would be used to pay for emission reductions that will 
further improve ozone air quality; and (iii) those that would be 
equivalent through a combination of both emission reductions and 
revenues.\2\ We are today determining through notice-and-comment 
rulemaking that states can demonstrate an alternative program's 
equivalency by comparing expected fees and/or emissions reductions 
directly attributable to application of section 185 to the expected 
fees, pollution control project funding, and/or emissions reductions 
from the proposed alternative program. Under an alternative program, 
EPA concludes that states may opt to proceed as here, shifting the fee 
burden from a specific set of major stationary sources to non-major 
sources, such as owners of mobile sources that also contribute to ozone 
formation. EPA also believes that alternative programs, if approved as 
``not less stringent'' than the section 185 fee program, would 
encourage one-hour ozone NAAQS nonattainment areas to reach attainment 
as effectively and expeditiously as a section 185 fee program, if not 
more so, and therefore satisfy the CAA's goal of attainment and 
maintenance of the NAAQS.
---------------------------------------------------------------------------

    \2\ These types of programs were identified in our proposed 
rulemaking action concerning SJVUAPCD Rule 3170 and its alternative 
program 76 FR 45212 (July 28, 2011).
---------------------------------------------------------------------------

    While section 185 focuses most directly on assessing emissions 
fees, we

[[Page 50023]]

believe it is useful to interpret anti-backsliding requirements for 
section 185 within the context of the CAA's ozone implementation 
provisions of subpart 2 (which includes section 185). The subpart 2 
provisions are designed to promote reductions of ozone-forming 
pollutant emissions to levels that achieve attainment of the ozone 
NAAQS. In this context, to satisfy the anti-backsliding requirements 
for section 185 associated with the 1-hour NAAQS, we believe it is 
appropriate for states to implement equivalent alternative programs 
that maintain a focus on achieving further emission reductions, whether 
that occurs through the incentives created by fees levied on pollution 
sources or other funding of pollution control projects, or some 
combination of both. For any alternative program adopted by a state, 
the state's demonstration that the program is not less stringent should 
consist of comparing expected fees and/or emission reductions directly 
attributable to application of section 185 to the expected fees, 
pollution control project funding, and/or emissions reductions from the 
proposed alternative program. For a valid demonstration to ensure 
equivalency, the state's submissions should not underestimate the 
expected fees and/or emission reductions from the section 185 fee 
program, nor overestimate the expected fees, pollution control project 
funding, and/or emission reductions associated with the proposed 
alternative program.
    We also note that the structure established in Subparts 1 and 2 of 
the CAA recognizes that successful achievement of clean air goals 
depends in great part on the development by states of clean air plans 
that are specifically tailored to the nature of the air pollution 
sources in each state. The Act recognizes that states are best suited 
to design plans that will be most effective. Allowing states to put 
forward an equivalent program under the circumstances that pertain 
here, and under the authority of section 172(e), is consistent with 
this principle of the Act.
    In sum, in order for EPA to approve an alternative program as 
satisfying the 1-hour ozone section 185 fee program SIP revision 
requirement, the state must demonstrate that the alternative program is 
not less stringent than the otherwise applicable section 185 fee 
program by collecting fees from owner/operators of pollution sources, 
providing funding for emissions reduction projects, and/or providing 
direct emissions reductions equal to or exceeding the expected results 
of the otherwise applicable section 185 fee program. We have previously 
accepted public comment on whether it is appropriate for EPA to 
consider equivalent alternative programs. We have concluded that it is 
appropriate to do so, and that SJVUAPCD's program is approvable as an 
equivalent alternative program consistent with the principles of 
section 172(e) of the Act.

III. Public Comments and EPA Responses

    EPA's proposed action provided a 30-day public comment period. 
During this period, we received comments from several parties. The 
comments and our responses are summarized below.

A. Rule 3170 and Section 185

1. Exemption for Clean Emission Units
    a. Comment: One commenter stated that Rule 3170, sections 4.1 and 
4.2, exempt so-called ``clean emission units,'' but section 185 does 
not allow for such an exemption. The Act provides no exemption for any 
major stationary source, regardless of the emission control technology 
employed. Congress assumed that areas subject to 185 will have adopted 
reasonably available control technologies (``RACT'') for major 
stationary sources, that other sources will have gone through new 
source review and be subject to the lowest achievable emission rate 
(``LAER'') requirement, and that SIPs may have targeted certain 
categories for more stringent controls than others. All of this is laid 
out in subparts 1 and 2 of Title I, Part D of the Act. Section 185 
applies when, despite all of these controls, the area still fails to 
attain. Another commenter stated that Rule 3170 allows exemptions for 
``clean emissions units'' and stated that the Act provides no exemption 
for any major stationary source, regardless of the emission control 
technology employed.
    Response: We agree that section 185 applies when an ozone 
nonattainment area designated Severe or Extreme fails to reach 
attainment by its attainment date and requires assessment of a fee for 
each source, with no exemption for clean emission units. Today's 
action, however, is to approve Rule 3170, in the context of the revoked 
1-hour ozone NAAQS. We conclude that Rule 3170 is approvable into the 
California SIP and as part of the District's equivalent alternative 
program because we have determined that Rule 3170 will result in the 
collection of fees at least equal to the amount that would be collected 
under section 185, that the fees will be used to reduce ozone 
pollution, and that the program therefore satisfies the requirements of 
CAA section 185, consistent with the principles of section 172(e). We 
also note that the program will raise this amount by a combination of 
fees from sources that do not qualify as ``clean units'' as defined in 
Rule 3170 and from a fee on vehicles, which are responsible for 
approximately 80 percent of ozone formation in SJVUAPCD.\3\ Our 
proposed action contains our analysis of how the District's equivalent 
alternative program meets the ``not less stringent than'' criterion of 
section 172(e), and we provide additional explanation below.
---------------------------------------------------------------------------

    \3\ District comment letter dated August 24, 2011 and the 
California Air Resources Board's California Emissions Projection 
Analysis Model (CEPAM): 2009 Almanac found at: https://www.arb.ca.gov/app/emsinv/fcemssumcat2009.php.
---------------------------------------------------------------------------

    b. Comment: Congress' decision was to make each major stationary 
source pay a penalty based on their individual contribution to the 
continuing problem. Larger emitters pay a larger fee and small emitters 
pay a smaller fee. There is no suggestion that the best controlled 
sources are entitled to any other ``reward'' or exemption. Section 185 
is not a program to penalize only the less-well regulated sources.
    Response: We do not agree with the commenter's statement that 
section 185 does not provide a ``reward'' or exemption for well-
controlled sources. In fact, we believe that section 185 clearly 
``rewards'' well-controlled sources by exempting those that reduce 
emissions by 20 percent or more from the fee requirements. This 
``reward,'' however, is available only if the source acts to decrease 
its emissions after the attainment deadline has passed, which in San 
Joaquin's case was 2010. Rule 3170, on the other hand, provides an 
exemption from fees for ``clean emission units,'' which are units that 
have air pollution controls that reduce pollution by at least 95 
percent or units that installed Best Available Control Technology 
(BACT) anytime between 2006 and 2010. The ``clean unit exemption'' in 
Rule 3170 is thus not consistent with the timing envisioned by 
Congress; therefore, we agree with the commenter that the exemption is 
not consistent with the express language in section 185. We note, 
however, that in the context of the revoked 1-hour ozone NAAQS, we are 
approving Rule 3170 into the California SIP and as part of the 
District's equivalent alternative program because we have determined 
that Rule 3170 will result in the collection of fees at least equal to 
the amount that would be collected under section 185, that the fees 
will be used to reduce ozone pollution, and that the program therefore 
satisfies the requirements of CAA section 185, consistent with the 
principles of section 172(e). Our

[[Page 50024]]

proposed action contains our analysis of how the District's equivalent 
alternative program meets the ``not less stringent than'' criterion of 
section 172(e), and we provide additional explanation below.
    We also do not agree with the comment that, ``Congress' decision 
was to make each major stationary source pay a penalty based on their 
individual contribution to the continuing problem. Larger emitters pay 
a larger fee and small emitters pay a smaller fee.'' In fact, under 
section 185 large emitters can completely avoid penalties in any year 
that they emit 20 percent less than they emitted in the applicable 
attainment year (2010 for the District). As a result, a source in the 
District that emits 500 tons of NOX in 2010 would not pay a 
section 185 fee in any subsequent year in which its NOX 
emissions are 400 tons or less. On the other hand, a source that emits 
50 tons of NOX in 2010 will still have to pay a section 185 
fee in every subsequent year that it emits more than 40 tons. Thus, 
under these scenarios, after the attainment year of 2010, the source 
that emits 400 tons would pay no fee and the source that emits 41 tons 
would pay a fee (albeit a nominal one based on 1 ton of emissions above 
the reduction target). In this respect, then, section 185 does not 
distinguish between sources based on their relative contribution to 
ozone non-attainment.
    c. Comment: That Congress understood that the level of control 
between sources could vary is expressly acknowledged in section 
185(b)(2), which specifies that the baseline comes from the lower of 
actuals or allowables, and that the allowables baseline is to be based 
on the emissions allowed ``under the permit'' unless the source has no 
permit and is subject only to limits provided under the SIP. It would 
defeat this express language to exempt sources from paying a fee based 
on some arbitrary notion of being ``clean enough.''
    Response: The commenter's characterization of Rule 3170's clean 
unit exemption as ``arbitrary'' or as based on ``being clean enough'' 
is inaccurate. In fact, Rule 3170, section 3.3 defines a ``clean unit'' 
as: an emission unit that (i) has emissions control technology with a 
minimum control efficiency of at least 95 percent (or at least 85 
percent for leanburn, internal combustion engines); or (ii) has 
emission control technology that meets or exceeds achieved-in-practice 
BACT as accepted by the Air Pollution Control Officer (APCO) during the 
period from 2006--2010.'' We believe Rule 3170 reflects the District's 
considered determination of what it views as ``clean'' sufficient to 
qualify for an exemption from fees as part of an equivalent alternative 
program for anti-backsliding purposes.
    Nevertheless, we agree with the commenter that Congress did not 
differentiate between sources according to the ``level of control.'' 
Thus, section 185 does not distinguish a source with a control 
efficiency of 1 percent from a source with a control efficiency of 99 
percent. Under either scenario, sources are subject to section 185 fees 
if those reductions occurred prior to the attainment year. This aspect 
of section 185 does not affect our action to approve Rule 3170 into the 
California SIP and as part of SJVUAPCD's equivalent alternative 
program, as discussed further below.
2. Alternative Baseline
    a. Comment: Two commenters stated that Rule 3170 fails to meet the 
requirements of section 185 by allowing an alternative baseline period 
for major stationary sources. They claim there is no statutory basis 
for section 3.2.2 of Rule 3170, which allows for the establishment of 
``[a]n alternative baseline period reflecting an average of at least 
two consecutive years within 2006 through 2010, if those years are 
determined by the APCO as more representative of normal source 
operation.'' They further claim that:
     Section 185 requires the baseline to be the lower of 
actual emissions or emissions allowed during the attainment year.
     Only sources with emissions that are irregular, cyclical, 
or otherwise vary significantly from year to year can extend the 
baseline period to account for that variation.
     The possibility of extending the baseline is not available 
at the option of the source or at the discretion of the APCO.
     Section 185 allows the option of extending the baseline 
only with respect to determining actual emissions; section 5.1 suggests 
that the APCO might be able to change the baseline period for 
determining allowable emissions, which is not allowed.
    Response: Section 185(b)(2) authorizes EPA to issue guidance that 
allows the baseline to be the lower of average actuals or average 
allowables determined over more than one calendar year. Section 
185(b)(2) further states that the guidance may provide that the average 
calculation for a specific source may be used if the source's emissions 
are irregular, cyclical or otherwise vary significantly from year to 
year. Pursuant to these provisions, EPA developed and issued a 
memorandum to EPA Regional Air Division Directors, ``Guidance on 
Establishing Emissions Baselines under Section 185 of the Clean Air Act 
(CAA) for Severe and Extreme Ozone Nonattainment Areas that Fail to 
Attain the 1-hour Ozone NAAQS by their Attainment Date,'' William T. 
Harnett, Director, Air Quality Division, March 21, 2008 (EPA's Baseline 
Guidance). EPA's Baseline Guidance suggests as an alternative baseline 
for sources whose annual emissions are ``irregular, cyclical, or 
otherwise vary significantly from year to year,'' the baseline 
calculation in EPA's Prevention of Significant Deterioration (PSD) 
regulations at 40 CFR 52.21(b)(48). As explained in EPA's Baseline 
Guidance, the PSD regulations allow a baseline to be calculated using 
``any 24-consecutive month period within the past 10 years (`2-in-10' 
concept) to calculate an average actual annual emissions rate (tons per 
year).''
    Rule 3170, section 3.2.2 allows for an alternative baseline based 
on the average of at least two consecutive years within 2006 through 
2010, ``if those years are determined by the APCO as more 
representative of normal source operation.'' Therefore, Rule 3170 
differs from the PSD-based 2-in-10 concept described in EPA's Baseline 
Guidance because it allows for an alternative baseline based on 2006-
2010, rather than the ``2-in-10'' concept.
    In response, we note that EPA's Baseline Guidance stated that the 
2-in-10 concept was ``an acceptable alternative method that could be 
used for calculating the `baseline amount,' '' leaving open the 
possibility that other methods might also be appropriate. We also note 
that EPA's Baseline Guidance described the 2-in-10 concept as warranted 
because it allows for a determination of a baseline ``that represents 
normal operation of the source'' over a full business cycle; the 
similar terminology leads to a reasonable expectation that 
determinations under Rule 3170 will be similar to those contemplated by 
EPA's Baseline Guidance. In addition, we believe that Rule 3170's use 
of a 5 year ``look back,'' rather than a 10 year ``look back'' actually 
limits the amount of flexibility allowed by Rule 3170's alternative 
baseline, rather than expanding it beyond the scope of EPA's Baseline 
Guidance.
    We do not agree with the commenter's criticism that Rule 3170 
section 5.1 ``suggests that the APCO might be able to change the 
baseline period for determining allowable emissions'' whereas section 
185 allows for extending a baseline based only on actual emissions. 
Section 185 plainly

[[Page 50025]]

states that EPA may issue guidance authorizing a baseline reflecting an 
emissions period of more than one year based on the ``lower of average 
actual or average allowables''.
    Furthermore, we note that the District's equivalent alternative 
program uses the attainment year, 2010, as the baseline period to 
determine the fees that would have been assessed under a direct 
implementation of section 185 and as the point of comparison for the 
equivalency demonstration. See Rule 3170, Section 7.2.1.3. In this way, 
we believe the District will be able to make a proper comparison 
between fees owed under section 185 and revenues resulting from the 
alternative fee program.
    Finally, we note that in the context of the revoked 1-hour ozone 
NAAQS, we are approving Rule 3170 into the California SIP and as part 
of the District's equivalent alternative program because we have 
determined that Rule 3170 will result in the collection of fees at 
least equal to the amount that would be collected under section 185, 
that the fees will be used to reduce ozone pollution, and that the 
program therefore satisfies the requirements of CAA section 185, 
consistent with the principles of section 172(e). Our proposed action 
contains our analysis of how the District's equivalent alternative 
program meets the ``not less stringent than'' criterion of section 
172(e).
3. Major Source Definition
    a. Comment: Cross-references are a bad practice because they create 
a potential for conflicts between the locally-applicable rule and the 
SIP-approved rule.
    Response: EPA believes that cross-references to other district 
rules can be problematic and has commented to our state and local 
agencies to that effect. There are also cases where cross-referencing 
is an efficient and reasonable approach to local rule development. We 
do not find that Rule 3170's cross-reference to Rule 2201, New and 
Modified Stationary Source Review Rule, is an appropriate basis for 
disapproval, nor does the commenter seem to claim that we should 
disapprove the rule on that basis.
    b. Comment: Rule 2201's definition of ``major source'' does not 
match the definition of 182(e) of the Act, which includes all emissions 
of VOC or NOX, with no exemption for fugitive emissions, and 
looks at the larger of actual or potential emissions. Rule 2201 
excludes fugitive emissions for certain sources.
    Response: EPA does not agree that Rule 3170's reference to Rule 
2201 is clearly inconsistent with the requirements of section 185. 
First, we note that section 182(e) is silent with respect to whether 
fugitive emissions should be included when determining whether a 
source's actual or potential emissions exceed the 10 ton per year 
threshold. That is, section 182(e) neither expressly includes nor 
excludes fugitive emissions. Second, we note that Congress' definition 
of ``major stationary source'' at CAA 302(j) expressly delegates to EPA 
the authority to address the inclusion of fugitive emissions in major 
source determinations by rule. EPA has promulgated such definitions in 
the context of our rules for non-attainment major new source review, 
prevention of significant deterioration, state operating permit 
programs, and federal operating permit programs. See 40 CFR part 51, 
Appendix S, part 52, part 70 and part 71. Each of these regulations 
excludes a source's fugitive emissions from major source determinations 
unless the source belongs to one of 28 specifically listed categories. 
Third, we believe that the District's use of its permitting program's 
definition of major source to implement the section 185 fee program is 
reasonable and consistent with congressional intent because Congress 
itself recognized the relevancy of permit programs to section 185 fee 
programs when it provided that the baseline amount for calculating 185 
fees should be ``the lower of the amount of actual VOC emissions 
(`actuals') or VOC emissions allowed under the permit applicable to the 
source''. Fourth, we note that CAA section 185 fee programs are new and 
that neither EPA nor the states have a history of interpreting or 
implementing section 185 in a way that would suggest that states should 
include fugitive emissions when determining which sources are subject 
to the program or that failure to do so would provide a basis for 
disapproving Rule 3170.
    The commenter's reference to section 182(e) ``look[ing] at the 
larger of actual or potential emissions'' is not entirely clear. To the 
extent that the commenter is saying that section 182(e) defines a major 
source as a source whose actual emissions exceed 10 tons per year or 
whose potential to emit exceeds 10 tons per year, we agree with the 
comment. Rule 2201, section 3.23 also defines major stationary source 
as one whose post-project emissions or post-project PTE exceeds 20,000 
pounds (10 tpy).
    c. Comment: Rule 2201 only includes potential emissions from units 
with valid permits.
    Response: The comment is vague and unclear in its reference to Rule 
2201. To the extent the commenter is complaining that a source's 
potential emissions are included only if the unit has a valid permit, 
EPA infers that the commenter is referencing Rule 2201, section 4.10, 
which provides that the calculation of post-project stationary source 
potential to emit shall include the potential to emit from all units 
with a valid Authority to Construct (ATC). To the extent that the 
commenter is concerned that some sources will not be considered major 
sources subject to section 185 fees because the source includes 
unpermitted emission units, EPA believes this problem is not an 
inherent defect in either Rule 2201 or Rule 3170, but rather a problem 
that should be addressed through enforcement action, which presumably 
will result in the issuance of an ATC if appropriate, followed by a 
determination of major source status if warranted.
    d. Comment: Rule 2201 credits limits in authorities to construct 
that may or may not reflect actual emissions.
    Response: The commenter's complaint that Rule 2201 ``credits limits 
in authorities to construct that may or may not reflect actual 
emissions'' is also vague and unclear--both in reference to the 
application of Rule 2201 itself and to how this aspect of Rule 2201, if 
it exists, affects determinations of major source status for the 
purposes of Rule 3170. To the extent the commenter is claiming that the 
application of Rule 2201 would not result in a calculation of major 
source status consistent with the CAA, we disagree. Rule 2201, section 
3.23 clearly allows for major source determinations to be made based on 
a source's post-project actual emissions or its post-project PTE and 
applies the correct trigger for either NOX or VOCs of 20,000 
pounds or 10 tons per year. Furthermore, we note that Rule 3170, 
section 6.2, requires sources to report actual emissions on an annual 
basis and that Rule 2201, sections 3.26 and 4.10 provide a clear means 
to determine a source's potential to emit. Thus, we do not agree with 
the commenter that Rule 3170 is flawed because of its reference to Rule 
2201 as the basis for defining ``major source.''
4. Motor Vehicle Fees as a ``Cure'' for Rule 3170's Clean-Unit 
Exemption and Alternative Baseline Provisions
    Comment: Motor vehicle fees do not qualify SJVUAPCD for either of 
the fee exemptions provided by the Act: (i) extension years under 
7511(a)(5), and (ii) areas with population below 200,000 that can 
demonstrate transport.
    Response: As explained in our proposed action, we are approving 
Rule

[[Page 50026]]

3170 into the California SIP and as part of the District's equivalent 
alternative program as an anti-backsliding measure for the revoked 1-
hour ozone standard because we have determined that Rule 3170 will 
result in the collection of fees at least equal to the amount that 
would be collected under section 185, that the fees will be used to 
reduce ozone pollution, and that the program therefore satisfies the 
requirements of CAA section 185, consistent with the principles of 
section 172(e). Thus, it is irrelevant that Rule 3170 does not meet the 
precise requirements of section 185.

B. EPA's Authority To Approve Alternative Fee Programs that Differ from 
CAA Section 185

1. Authority Under CAA and Case Law
    Comment: One commenter stated that nothing in the plain language of 
the Act, the ``principles'' behind that language, or South Coast Air 
Quality Management District v. EPA, 472 F.3d 882 (D.C. Cir. 2006) gives 
EPA the power to rewrite the terms of section 185. EPA's argument that 
it can invent alternatives that fail to comply with the plain language 
of section 185 has no statutory basis. Another commenter stated that 
section 185's plain language is unambiguous, that Congress has 
specified the parameters of the section 185 program and that to approve 
a fee alternative program that does not meet the minimal requirements 
explicitly set out in section 185 violates the plain language of the 
Act. This commenter also stated that the South Coast court upheld 
retention of section 185 nonattainment fees for regions that fail to 
meet the 1-hour ozone standard. Other commenters supported EPA's action 
as a reasonable interpretation of the Act and consistent with the South 
Coast decision.
    Response: In a 2004 rulemaking governing implementation of the 1997 
8-hour ozone standard, EPA revoked the 1-hour ozone standard effective 
June 15, 2005. 69 FR 23858 (April 30, 2004) and 69 FR 23951 (April 30, 
2004) (``2004 Rule''); see also, 40 CFR 50.9(b). EPA's revocation of 
the 1-hour standard was upheld by the Court of Appeals for the District 
of Columbia Circuit. South Coast Air Quality Management District v. 
EPA, 472 F.3d 882 (D.C. Cir. 2006) reh'g denied, 489 F.3d. 1245 (D.C. 
Cir.) 2007) (clarifying that the vacatur was limited to the issues on 
which the court granted the petitions for review)(``South Coast''). 
Thus, the 1-hour ozone standard that the District failed to attain by 
its attainment date no longer exists and a different standard now 
applies.
    Section 172(e) provides that, in the event of a relaxation of a 
primary NAAQS, EPA must promulgate regulations to require ``controls'' 
that are ``not less stringent'' than the controls that applied to the 
area before the relaxation. EPA's 8-hour ozone standard is recognized 
as a strengthening of the NAAQS, rather than a relaxation; however, EPA 
is applying the ``principles'' of section 172(e) to prevent backsliding 
of air quality in the transition from regulation of ozone pollution 
using a 1-hour metric to an 8-hour metric. Our application of the 
principles of section 172(e) in this context was upheld by the D.C. 
Circuit in the South Coast decision: ``EPA retains the authority to 
revoke the one-hour standard so long as adequate anti-backsliding 
provisions are introduced.'' South Coast, 472 F.3d at 899. Further, the 
court stated, that in light of the revocation, ``[t]he only remaining 
requirements as to the one-hour NAAQS are the anti-backsliding 
limitations.'' Id.
    As stated above, section 172(e) requires State Implementation Plans 
to contain ``controls'' that are ``not less stringent'' than the 
controls that applied to the area before the NAAQS revision. EPA's 2004 
Rule defined the term ``controls'' in section 172(e) to exclude section 
185. See 2004 Rule, 69 FR at 24000. The D.C. Circuit ruled that EPA's 
exclusion of section 185 from the list of ``controls'' for Severe and 
Extreme non-attainment areas was improper and remanded that part of the 
rule back to EPA. See South Coast, 472 F.3d at 902-03. The court did 
not, however, address the specific issue of whether the principles of 
section 172(e) required section 185 itself or any other controls not 
less stringent, and section 172(e) clearly on its face allows such 
equivalent programs. Further, the court in NRDC v. EPA, 643 F.3d 311 
(D.C. Cir. 2011), specifically noted with respect to equivalent 
alternative programs that ``neither the statute nor our case law 
obviously precludes [the program alternative.]'' 643 F.3d at 321. In 
this rulemaking approving SJVUAPCD Rule 3170, EPA is fully recognizing 
section 185 as a ``control'' that must be met through the application 
of the principles of section 172(e). As explained above, the D.C. 
Circuit stated that EPA must apply the principles of section 172(e) to 
non-attainment requirements such as section 185. Thus, we are following 
the D.C. Circuit's holding that the principles of section 172(e) apply 
in full to implement 185 obligations.
2. Applicability of Section 172(e)
    Comment: CAA section 172(e) does not apply to this situation 
because EPA has adopted a more health protective ozone standard. EPA 
acknowledges that section 172(e) by its terms does not authorize EPA's 
action because the newer 8-hour ozone standard is not a relaxation of 
the prior 1-hour ozone standard. EPA claims that its authority to 
permit States to avoid the express requirements of section 185 derives 
from the ``principles'' of section 172(e). But there is no principle in 
the CAA that Congress intended to give EPA authority to rewrite the 
specific requirements of section 185 when EPA finds that the health 
impacts related to ozone exposure are even more dangerous than Congress 
believed when it adopted the detailed requirements in the 1990 Clean 
Air Act Amendments. The South Coast court upheld retention of section 
185 nonattainment fees for regions that fail to meet the 1-hour ozone 
standard. Other commenters supported EPA's action as a reasonable 
application of section 172(e).
    Response: The South Coast court agreed with the application of the 
principles of section 172(e) despite the fact that section 172(e) 
expressly refers to a ``relaxation'' of a NAAQS, whereas the transition 
from 1-hour to 8-hour is generally understood as increasing the 
stringency of the NAAQS. As the court stated, ``Congress contemplated * 
* * the possibility that scientific advances would require amending the 
NAAQS. Section 109(d)(1) establishes as much and section 172(e) 
regulates what EPA must do with revoked restrictions * * *. The only 
remaining requirements as to the one-hour NAAQS are the anti-
backsliding limitations.'' South Coast, 472 F.3d at 899. (citation 
omitted).
3. Discretion in Title I, Part D, Subparts 1 and 2
    Comment: One commenter stated that the Supreme Court in Whitman v. 
Am. Trucking Assns, interpreted the CAA as showing Congressional intent 
to limit EPA's discretion. The D.C. Circuit in SCAQMD also held that 
EPA's statutory interpretation maximizing agency discretion was 
contrary to the clear intent of Congress in enacting the 1990 
amendments. EPA's approach [with respect to 185] would allow EPA to 
immediately void the specific statutory scheme Congress intended to 
govern for decades. EPA cannot reasonably claim that Congress meant to 
give EPA the discretion to revise the carefully prescribed statutory 
requirements like section 185 that Congress adopted to address these 
exposures. EPA proposes to accept a program other than that provided by 
Congress in section 185. Given that Congress provided a specific

[[Page 50027]]

program, EPA has no discretion to approve an alternative. Another 
commenter also stated that given that Congress provided a specific 
program, EPA has no discretion to approve an alternative.
    Response: While one holding in Whitman v. Am. Trucking Assns, 531 
U.S. 457 (2001) stands for the general proposition that Congress 
intended to set forth prescriptive requirements for EPA and states, 
particularly the requirements contained in Subpart 2, the D.C. Circuit 
has noted that the Court did not consider the issue of how to implement 
Subpart 2 for the 1-hour standard after revocation. See, South Coast, 
472 F.3d at 893 (``when the Supreme Court assessed the 1997 Rule, it 
thought that the one- and eight-hour standards were to coexist.''). 
Thus, the Court did not consider how section 172(e)'s anti-backsliding 
requirements might be applied in the current context of a revoked 
NAAQS.
    We also believe that the commenter's reliance on South Coast to 
argue that it precludes EPA's use of section 172(e) principles to 
implement section 185 is similarly misplaced. The holding cited by the 
commenter relates to an entirely different issue than EPA's discretion 
and authority under section 172(e)--whether EPA had properly allowed 
certain 8-hour ozone non-attainment areas to comply with Subpart 1 in 
lieu of Subpart 2. In fact, the South Coast court not only upheld EPA's 
authority under section 109(d) to revise the NAAQS, it recognized its 
discretion and authority to then implement section 172(e):
    Although Subpart 2 of the Act and its table 1 rely upon the then-
existing NAAQS of 0.12 ppm, measured over a one-hour period, elsewhere 
the Act contemplates that EPA could change the NAAQS based upon its 
periodic review of `the latest scientific knowledge useful in 
indicating the kind and extent of all identifiable effects on public 
health' that the pollutant may cause. CAA sections 108(a), 109(d), 42 
U.S.C. sections 7408(a), 7409(d). The Act provides that EPA may relax a 
NAAQS but in so doing, EPA must `provide for controls which are not 
less stringent than the controls applicable to areas designated 
nonattainment before such relaxation.' CAA 172(e), 42 U.S.C. 7502(e). 
South Coast, 472 F.3d at 888.
    Further, as noted above, EPA believes that South Coast supports our 
reliance on section 172(e) principles to approve Rule 3170 and 
SJVUAPCD's alternative program as fulfilling section 185 requirements 
for the revoked 1-hour standard. As the court stated, ``EPA was not, as 
the Environmental petitioners contend, arbitrary and capricious in 
withdrawing the one-hour requirements, having found in 1997 that the 
eight-hour standard was `generally even more effective in limiting 1-
hour exposures of concern than is the current 1-hour standard.' * * * 
The only remaining requirements as to the one-hour NAAQS are the anti-
backsliding limitations.'' Id. (citation omitted).

C. EPA's Proposed Action and Consistency With Section 172(e)

1. Statutory Analysis for Alternatives to a 185 Program
    Comment: EPA's different and inconsistent tests for determining 
``not less stringent'' undermine the reasonableness of these options as 
valid interpretations of the Act. EPA's interpretation means that a 
program that achieves the same emission reductions as section 185 and a 
program that achieves fewer emission reductions than section 185 can 
both be considered ``not less stringent.'' However, stringency is 
either a measure of the emission reductions achieved or it is not. If 
it is, then a program that does not achieve equivalent reductions 
cannot pass the test. EPA did not actually interpret the term 
``stringent'' and offers no basis for claiming that Congress intended 
this term to have different meanings and allow for different metrics 
for guarding against backsliding.
    Response: We believe that the three alternatives we identified in 
our proposed action (i.e., same emission reductions; same amount of 
revenue to be used to pay for emission reductions to further improve 
ozone air quality; a combination of the two) are reasonable and 
consistent with Congress' intent. First, we note that Congress did not 
define the phrase ``not less stringent'' or the term ``stringent'' in 
the Act. EPA, therefore, may use its discretion and expertise to 
reasonably interpret section 172(e). Furthermore, we note that the D.C. 
Circuit, in NRD.C. v. EPA, 643 F.3d 311 (D.C. Cir. 2011), while finding 
that EPA's guidance document providing our initial presentation of 
various alternatives to section 185 \4\ should have been promulgated 
through notice-and-comment rulemaking, declined to rule on whether the 
types of alternative programs we considered in connection with our 
proposed action on SJVUAPCD Rule 3170 were illegal, stating, ``neither 
the statute nor our case law obviously precludes [the program 
alternative].'' Id. at 321.
---------------------------------------------------------------------------

    \4\ ``Guidance on Developing Fee Programs Required by Clean Air 
Act Section 185 for the 1-hour Ozone NAAQS, Stephen D. Page, 
Director, Office of Air Quality Planning and Standards, to Regional 
Air Division Directors, Regions I-X, Jan. 5, 2010,'' vacated, NRD.C. 
v. EPA, 643 F.3d 311 (D.C. Cir. 2011).
---------------------------------------------------------------------------

    We do not agree that evaluating a variety of metrics (e.g., fees, 
emissions reductions, or both) to determine whether a state's 
alternative program meets section 172(e)'s ``not less stringent'' 
criterion undermines our interpretation. On its face, section 185 
results in assessing and collecting emissions fees, but the fact that 
section 185 is also part of the ozone nonattainment requirements of 
Part D, Subpart 2, suggests that Congress also anticipated that section 
185 might lead to emissions reductions that would improve air quality, 
and ultimately facilitate attainment of the 1-hour ozone standard.\5\ 
Thus, EPA believes it is reasonable to assess stringency of alternative 
programs on the basis of either the monetary or emissions-reduction 
aspects of section 185 or on the combination of both.
---------------------------------------------------------------------------

    \5\ EPA previously articulated the dual nature of section 185 in 
its now-vacated section 185 guidance. See id. at 4. Although the 
section 185 guidance policy has been vacated, we agree with, and 
here in this notice and comment rulemaking adopt, its reasoning on 
this point.
---------------------------------------------------------------------------

    Lastly, as discussed in our proposal, SJVUAPCD has demonstrated 
that Rule 3170 will result in the collection of at least as much 
revenue from owners/operators of relevant emission sources as a fee 
program directly implemented under section 185. In addition, it is 
reasonable to expect that SJVUAPCD's alternative program will achieve 
more emission reductions than direct implementation of section 185 
because the District's alternative program uses fees to reduce 
emissions, while section 185 has no such direct requirement. While the 
comment suggests that EPA's logic, if unreasonably extended, might 
theoretically lead it to approve a program that achieves fewer emission 
reductions than a program directly implemented under section 185, we 
are clearly not doing that here, and have no intention of doing so in 
the future.
2. ``Not Less Stringent'' and Target of Fees
    a. Comment: To be ``not less stringent,'' a control must be no less 
rigorous, strict, or severe; all of these qualities focus on the burden 
to the entities responsible for complying with the rule or standard. 
The purpose of Rule 3170 is less stringent than section 185 because 
Rule 3170 exempts large categories of major industrial sources and 
dilutes section 185's target by spreading its impact across the 
millions of individuals registering cars in the SJV.

[[Page 50028]]

    Response: It is difficult to try to assess the relative stringency 
of section 185 and Rule 3170 based on a comparison of which entities 
are responsible for paying fees. The two types of fee programs target 
different types of sources, such that all stationary sources have the 
fee obligation under section 185 while less well-controlled stationary 
sources, along with motor vehicle owners have the obligation under Rule 
3170. Overall, however, we believe that SJVUAPCD's alternative program 
is not less stringent than section 185 because it will generate at 
least as much revenue as a program that directly implements section 
185. Rule 3170 by its explicit terms requires a demonstration that the 
revenue generated by the alternative program will equal or exceed the 
amount that would have been generated by a 185 program.
    In addition, we believe that SJVUAPCD's alternative program will 
result in emissions reductions because the demonstration required by 
Rule 3170 must rely on ``California Vehicle Code fees'' to offset any 
fees that would otherwise be due from direct implementation of section 
185. Rule 3170's definition of ``California Vehicle Code fees'' 
specifies that these fees ``are required by Health and Safety Code 
Section 40612 to be expended on establishing and implementing 
incentive-based programs * * *. These fees shall therefore be used in 
programs designed to reduce NOX and VOC emissions in the San 
Joaquin Valley.'' In addition, state law clearly requires that the fees 
be directed towards programs that reduce NOX and VOC 
emissions in the San Joaquin Valley. Cal. Health and Safety Code 40612.
    Furthermore, we note that, according to the District, stationary 
sources currently contribute approximately 20 percent of the ozone 
precursor emissions, while mobile sources are responsible for 
approximately 80 percent of such emissions in the SJVUAPCD.\6\ The 
District also states that most stationary sources in its jurisdiction 
have already installed air pollution controls as a result of new source 
review or retrofitting requirements and that the only options to such 
businesses to avoid fees would be to either curtail production or to 
cease operation.\7\ Rule 3170 places the burden of fees under its 
equivalent alternative program on major stationary sources that do not 
qualify as ``clean emissions units'' and on motor vehicle owners. To 
the extent that stringency can be evaluated based on which entities are 
subject to fees, we believe that SJVUAPCD's alternative program is not 
less stringent than section 185 because it imposes the fee obligation 
on the sources most responsible for continuing ozone pollution in the 
Valley. And, as noted, it also requires that the fees be used to fund 
ozone reduction, something section 185 does not do.
---------------------------------------------------------------------------

    \6\ District comment letter dated August 24, 2011 and the 
California Air Resources Board's California Emissions Projection 
Analysis Model (CEPAM): 2009 Almanac found at:  https://www.arb.ca.gov/app/emsinv/fcemssumcat2009.php.
    \7\ ``Most stationary sources in the San Joaquin Valley are 
already equipped with Best Available Retrofit Control Technology 
(BARCT) or Best Available Control Technology (BACT) * * * most 
businesses have already made significant investments and installed 
the most advanced controls available for their facilities.'' 
Memorandum from Seyed Sadredin, Executive Director/APCO to SJVUAPCD 
Hearing Board, re ``Alternatives for the Equitable Application of 
Mandated Federal Nonattainment Penalties to Sources within the San 
Joaquin Valley through the use of Motor Vehicle Fees,'' Oct. 21, 
2010, at 4.
---------------------------------------------------------------------------

    b. Comment: Rule 3170 is less stringent than section 185. Section 
185 is not a standard-based provision, nor is it based on a specific 
fee collection amount. The purpose of section 185 is to penalize major 
stationary sources in Severe and Extreme nonattainment areas. The 
stringency of section 185 does not stem from a dollar figure or 
emission target, but rather from three requirements: (i) Each major 
stationary source pay a fee; (ii) the fee be equal to $5000, adjusted 
for inflation, per ton of VOC or NOX emitted in excess of 80 
percent of the baseline; and (iii) the baseline amount be established 
from the attainment year inventory, unless the source's emissions are 
irregular, cyclical, or otherwise varying significantly from year to 
year. Charging motor vehicle fees merely adds a revenue stream. It 
fails to make up for the shortfall of not charging all major stationary 
sources penalty fees and basing those fees on the attainment year 
baseline, etc.
    Response: We do not agree that an alternative program must adhere 
to the specific criteria identified by the commenter. In the context of 
the revoked 1-hour ozone NAAQS, and applying the principles of section 
172(e) as upheld by the D.C. Circuit, the alternative program must be 
demonstrated to be ``not less stringent'' than the otherwise applicable 
required ``control,'' i.e., section 185. We are approving Rule 3170 
into the California SIP and as part of the District's equivalent 
alternative program because we have determined that Rule 3170 will 
result in the collection of fees at least equal to the amount that 
would be collected under section 185, that the fees will be used to 
reduce ozone pollution, and that the program therefore satisfies the 
requirements of CAA section 185, consistent with the principles of 
section 172(e). Moreover, as explained above, we believe that the 
District's alternative program, by imposing fees on mobile sources--the 
sources most responsible for the Valley's continuing ozone 
nonattainment problems--advances the legislative policy of creating 
incentives to facilitate attainment that underlay section 185 when it 
was enacted by Congress in 1990.
    In addition, we note that Rule 3170 allows only money generated by 
motor vehicle registration fees and spent on ozone pollution reduction 
projects in the Valley to offset fees that would otherwise be due from 
direct implementation of section 185. In addition, state law requires 
that these fees be used to reduce NOX and VOC pollution in 
the San Joaquin Valley which is consistent with section 185's place 
within the ozone non-attainment provisions of CAA Title 1, part D, 
subpart 2.
3. ``Not Less Stringent'' and Equivalent Fees
    Comment: A program that raises an equivalent amount of money is not 
supported by section 185's structure and legislative history. Section 
185 was not intended as a revenue generating provision.
    Response: Section 185 explicitly mandates a specific fee, requires 
that the fee be indexed for inflation, establishes a baseline for 
measuring such fees, and authorizes an alternative method for 
calculating that fee. For those reasons, and the additional reasons 
discussed above, we believe that section 185 has both monetary and 
emissions-related aspects and that it is reasonable for EPA to assess 
stringency of alternative programs on the basis of either aspect of 
section 185 or on the combination of both. Nevertheless, EPA notes that 
Rule 3170 imposes fees on those major stationary sources that do not 
meet the criteria for the ``clean emissions unit'' exemption and 
thereby provides an incentive for those stationary sources to reduce 
their emissions.\8\ In addition, SJVUAPCD's alternative program imposes 
a fee on motor vehicles, the largest source of emissions in the Valley, 
thereby supporting emissions

[[Page 50029]]

reductions from that source as well and in that respect will be no less 
effective in reducing ozone-formation than a section 185 fee program on 
major sources not meeting the ``clean emissions unit'' exemption would 
be. We further note that SJVUAPCD's alternative program will direct the 
revenues generated from the motor vehicle registration fee to VOC and 
NOX emissions reductions programs.
---------------------------------------------------------------------------

    \8\ Rule 3170's clean unit exemption applies only to: (i) Units 
equipped with emissions control technology that meets a minimum 
control efficiency of at least 95% or 85% for lean-burn internal 
combustion engines; or (ii) units equipped with BACT as accepted by 
the APCO during 2006 through 2010).
---------------------------------------------------------------------------

4. ``Not Less Stringent'' and Equivalent Emission Reductions
    a. Comment: The measure of equivalency should be section 185's 
emission reduction incentive. Penalties end if an area attains the 
standard or a source reduces its emissions by 20 percent. As the DC 
Circuit noted, ``these penalties are designed to constrain ozone 
pollution.'' Nothing in the legislative history indicates that 
Congress' intent was to collect a certain amount of money.
    Response: The comment correctly points to the fact that section 185 
states that fees must be paid until an area is redesignated to 
attainment for ozone and that section 185 does not require fees from 
sources that reduce emissions by 20 percent (compared to emissions 
during the baseline period). Thus, one consequence of a section 185 fee 
program may be a reduction in VOC and/or NOX emissions. 
However, EPA does not agree with the comment to the extent it is saying 
that emission reductions must be the sole basis for determining whether 
an alternative program is ``not less stringent'' than a section 185 
program. As we stated above, we believe the stringency of an 
alternative program may be evaluated by comparing either the fees 
(which must be used to pay for emissions reductions) or emission 
reductions otherwise achieved from the proposed alternative program to 
the fees or emissions reductions directly attributable to application 
of section 185 (or by comparing a combination of fees and reductions).
    In addition, the comment does not acknowledge that section 185 
allows major sources to pay fees and not reduce emissions. The comment 
also does not acknowledge that SJVUAPCD is required by state law to use 
the revenues generated by the alternative fee program to fund 
incentive-based programs that will result in NOX and VOC 
emissions reductions in the San Joaquin Valley. We believe this aspect 
of the District's alternative program reflects the emission reductions 
aspects of section 185. We also believe that it is possible that 
SJVUAPCD's alternative program could result in more emission reductions 
than a section 185 program that funds unrelated programs.
    b. Comment: Section 185 is a market-based policy device to 
internalize the external costs of pollution and thereby incentivize 
emission reductions at major stationary sources. EPA should assess how 
the incentives in Rule 3170 compare to the incentives in section 185. 
This analysis would look at how a pollution tax might drive sources to 
improve controls, and how the potential increase in the price of goods 
would cause consumers to look for alternatives that are not subject to 
the same tax.
    Response: We do not agree that the comparison of ``incentives'' or 
a pollution tax proposed by the commenter is the only approach to 
evaluating the relative stringency of an alternative program, as 
explained above. In addition, we believe that Rule 3170 will have a 
beneficial effect on air quality in the San Joaquin Valley because 
state law requires that the fees generated by the rule be spent on air 
pollution reduction programs in the Valley.
    c. Comment: Rule 3170 severs the link between the fee and pollution 
levels. A new Prius is subject to the same fee as a dirty clunker, 
while stationary sources exempted from the fee have no incentive to 
improve performance.
    Response: While we agree that in theory a section 185 program may 
reduce emissions, section 185 in itself does not mandate such 
reductions. Moreover, the link between section 185 and emission 
reductions is uncertain to the extent that section 185 requires fees 
from a unit that lowered its emissions by less than 20 percent at any 
time, or even by more than 20 percent if it did so before the 
attainment year deadline, but creates a perverse incentive by exempting 
a source that defers 20 percent emission reductions until after the 
attainment year.
    In addition, as stated above, Rule 3170 continues to impose section 
185 fees on emissions units that have not taken the emission reduction 
measures needed to qualify for the ``clean emissions unit'' exemption. 
Moreover, the District has determined that most stationary sources have 
installed pollution controls that meet BARCT or BACT standards and thus 
there is little more these sources can do to reduce emissions other 
than curtailing production or ceasing operation.
5. ``Not Less Stringent'' and Alternative Baseline
    Comment: Rule 3170 is less stringent because it exempts certain 
stationary sources from paying penalty fees and because it allows 
sources to use an alternative baseline of a 2 year average even if the 
source's emissions are not irregular, cyclical or otherwise vary from 
year to year.
    Response: We do not agree that the District's alternative program 
is less stringent than section 185. As explained above, section 185 has 
both monetary and emissions reductions characteristics. We believe that 
the District's alternative program implements both aspects of section 
185 by assessing fees on major contributors to air pollution in the San 
Joaquin Valley (major sources not qualifying for the clean unit 
exemption and motor vehicles), and by obligating these fees to 
NOX and VOC pollution reduction programs. Moreover, as 
explained previously, we are approving SJVUAPCD's program as a not less 
stringent alternative program for anti-backsliding purposes and 
therefore determine that it complies with the statute even though it 
does not strictly follow the requirements of 185.
6. ``Not Less Stringent'' and Process for Revenues To Be Spent on Air 
Quality Programs
    a. Comment: EPA's analysis did not demonstrate that Rule 3170 
includes a process for revenues to be spent on emission reductions to 
improve ozone air quality. EPA states that alternative programs might 
include those that raise the same amount of revenue and establish a 
process where the revenues would be used to pay for emission reductions 
that will further improve ozone air quality. But Rule 3170 includes no 
process or mention of how fees will be spent.
    Response: Rule 3170, section 7.2 requires the District to prepare 
an ``Annual Fee Equivalency Demonstration Report.'' Section 7.2.2 
specifies that the report must demonstrate whether the sum total of 
fees collected under Rule 3170 and ``California Vehicle Code fees'' is 
equal to or greater than the fees that would be due under a direct 
implementation of section 185. Rule 3170's definition of ``California 
Vehicle Code fees'' specifies that these fees ``are required by Health 
and Safety Code Section 40612 to be expended on establishing and 
implementing incentive-based programs * * * These fees shall therefore 
be used in programs designed to reduce NOX and VOC emissions 
in the San Joaquin Valley.'' We believe that Rule 3170, therefore, will 
result in the expenditure of fees on ozone air pollution reduction 
programs.
    In addition, we note that Health & Safety Code section 40612(a)(1) 
authorizes SJVUAPCD to increase motor

[[Page 50030]]

vehicle fees by up to $30 per motor vehicle per year to establish and 
maintain incentive-based programs that are intended to address air 
pollution caused by motor vehicles and achieve and maintain state and 
federal air quality standards. Health & Safety Code section 40612(b) 
specifies that at least ten million dollars of motor vehicle 
registration fees be used to mitigate air pollution impacts on 
disadvantaged communities. Section 40612(c) requires the District and 
the California Air Resources Board (CARB) to take certain steps to 
effectuate the supplemental motor vehicle fee: (1) The District must 
notify CARB that it has adopted the fee and provide a